Story No. 1:

Judge to hear motions in Silicon Valley economic espionage case

By RACHEL KONRADAP Business Writer

Oct. 19, 2003

SAN JOSE, Calif. (AP) - In November 2001, two men were arrested at San Francisco International Airport with tickets to China and, prosecutors allege, suitcases packed with trade secrets swiped from high-tech companies.

A federal judge is scheduled to hear pretrial motions Monday, including arguments by the defendants' attorneys to dismiss the case brought under the 1996 Economic Espionage Act.

If allowed to proceed, the case could have implications for international relations -- and spur other companies to be more forthcoming about trade secret theft, which costs the nation's 1,000 largest businesses more than $45 billion per year, according to a 2001 study by PricewaterhouseCoopers.

Fei Ye, 37, and Ming Zhong, 36, are accused of stealing microchip designs and other secrets, as well as at least $10,000 in equipment, from computer giants Sun Microsystems Inc., NEC Electronics Corp., Transmeta Corp. and Trident Microsystems Inc.

According to prosecutors, the men intended to use the stolen data to start a company called Hangzhou Zhongtian Microsystems Co. -- a joint venture with the Chinese city Hangzhou.

The Chinese government wrote in documents found at the men's homes that their project would be "extremely useful to the development of China's integrated circuit industry," according to court files.

Hangzhou officials could not be reached for comment. China's Foreign Ministry said it knew nothing about the case, and China's Consulate General in San Francisco said there was "no link or connection" between the men and the Chinese government.

"Nobody from the U.S. government even informed us of the hearing," said Wu Jian, vice counsel at Consulate General. "This is an independent case that has nothing to do with us."

Economic espionage is more difficult to track and prosecute than trade secret theft because it requires authorities to find evidence that a foreign government was involved.

"It's much more difficult to prove someone stole trade secrets with the intent to benefit a foreign government," said Ross Nadel, chief of the Computer Hacking and Intellectual Property Unit of the U.S. Attorney's Office for Northern California.

"But we believe we do have the proof to prove separate counts of trade secrets, transportation of stolen property and conspiracy," he said.

If convicted, Ye and Zhong could face up to 95 years in prison and $3 million in fines on 10 criminal counts.

Ye, a naturalized U.S. citizen, worked for Transmeta, but it's unclear what role Zhong, a permanent resident, played at the companies involved in the case. Both men are originally from China.

Paul B. Meltzer, who represents Ye, said his client was merely carrying "the materials that any engineer would take and use as reference materials" when they were arrested at the airport.

"If you carefully analyze that which was found, it would be like taking apple seeds to plant oranges," Meltzer said. "The information he possessed was not relevant to the business he was going to be involved in China."

Meltzer would not elaborate on Ye's business plans. Zhong's attorneys did not return calls seeking comment.

The FBI and the Justice Department are investigating or prosecuting 132 cases of trade secret theft, including at least three dozen economic espionage investigations.

However, companies have often not been forthcoming about trade secret theft because they fear it would be bad for business if they appear vulnerable.

Nadel said winning the Silicon Valley case could help erase the stigma for victim companies. It could also make companies more aware of espionage, said Steven Fink, president of crisis management firm Lexicon Communications Corp.

"It's not like stealing a car, where you walk out into the garage the next morning and say, 'My car's not there,''' said Fink. "In trade secret theft, you normally leave the original document or plan behind."

Sun, NEC, Transmeta and Trident participated in Ye and Zhong's case.

Denise Iwata, a spokeswoman for NEC, said the Tokyo-based conglomerate wanted to help federal authorities more than they worried about being viewed as a victim.

"We're pleased and delighted that they're stepping in to protect trade secrets of companies doing business in the United States," Iwata said. "If we want to continue to enjoy the protection of these agencies, we have to work closely with them.''